Opening a money market account can help you accomplish your short-term savings goals, and finding a money market account, often called an MMA, with a high annual percentage yield (APY) can help you maximize your efforts. When you use an MMA, you often earn a higher interest rate than you would in a traditional savings account, and you have access to your funds the way you would if you kept that money in a checking account.
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Types of money market accounts: Traditional vs. high-yield
As with savings accounts, there are two types of MMAs: traditional and high-yield accounts. Traditional money market accounts offer relatively low interest rates, albeit better than most traditional savings accounts on average.
In contrast, high-yield money market accounts offer interest rates that are much higher than traditional money market accounts. That said, they may or may not offer higher APYs (percentage of growth earned through compound interest over one year) compared to some high-yield savings accounts.
Read more: What is a money market account?
How to find the best money market account
While it may be tempting to open a money market account with the bank you already have a relationship with, take your time to shop around and compare APYs from multiple sources to ensure you get the best offer available.
For the most part, online banks offer the best money market account rates. But you can also find solid options with state and federal credit unions, and even some traditional banks.
Run a quick search online for the best money market accounts, and several resources will pop up to help you compare the top options available.
In addition to interest rates, fees, initial deposit amount needed, and balance requirements, check to see if you’ll have easy access to your money market funds.
Read more: How to open a money market account
How do money market accounts work?
Of course, there’s a little more to MMAs than traditional savings or checking accounts that go beyond the differences in interest rates and access. You’ll also want to get clear on associated fees, insurance and the balance requirements for these specialized accounts that define their whole methodology. Here’s a breakdown of how money market savings accounts work, along with some of the most common account features:
Interest: You can expect to earn interest on your balance, typically at a higher rate than traditional checking and savings accounts. That said, interest rates can vary depending on the financial institution and the type of money market account you choose. Also, some financial institutions may offer tiered rates based on your balance.
Quick access to funds: Like a checking account, you can typically access your money using a debit card, an ATM card, logging into your account online, or via bank transfer. MMA accounts also often offer check-writing privileges. That said, account holders may be limited to six monthly withdrawals, a feature often shared with savings accounts. After that, your bank or credit union may charge an excessive withdrawal fee or even decline your requests.
Fees: Like checking accounts, some money market accounts charge fees, including monthly fees and ATM fees, though thos fees may be waived if you meet certain criteria.
Insurance: Like other deposit accounts, the funds in your money market account are typically federally insured, either through the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA). An NCUA- or FDIC-insured MMA will be covered up to $250,000.
Balance requirements: Minimum balance requirements can vary, but in some cases, you may need to meet a certain minimum balance or initial deposit requirement to avoid a monthly fee or earn interest.
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Understanding yield
Money market accounts offer interest on your deposits, either at a set rate regardless of your balance or on a tiered basis, with various rates based on your balance.
But like other interest-bearing bank…
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